On the Environment

In a post last week I mentioned that I had made two particular predictions this past year. I was happily correct in one of my predictions, and I posted on that last week. I also promised to discuss my wrong prediction this week. I thought about breaking that promise because I don’t like being wrong, but the subject matter is too interesting to ignore.

At the end of January I blogged about an environmental case in the United States Supreme Court. The case, Koontz v. St. Johns River Water Management District involved (I thought) some very nuanced aspects of the U.S. Constitution’s Takings Clause. I discussed all the details in the earlier post, so I’ll give only a very brief recap here: Mr. Koontz wanted to develop some wetlands into commercial shopping. Local environmental officials asked Koontz to pay for restoration at wetlands several miles away or to reduce the size of his planned development. Koontz refused these conditions and the officials denied his permit.

Koontz’s lawsuit claimed that the state had effectively taken his property without compensation, in violation of the Fifth Amendment of the Constitution. As my previous post explained, this argument is typically used when the government either physically appropriates private property—as in the example of Harvey and Phyllis Karan’s strip of beach in New Jersey—or regulates property so heavily that it is effectively unusable for private purposes—for example, when regulation prohibits all construction on the property. One thing that makes Koontz an interesting case is that the government never took Koontz’s property; they merely denied him a development permit.

I wrote above that “I thought” this was a case about the Takings Clause. In my previous post I argued that if the government had approved a permit for Koontz, and that permit required him to mitigate wetlands, then, perhaps, they would have effectively taken his property and would have to pay or change the permit. However, because the government denied the permit, no property ever changed hands. Therefore there could not be a taking, and Koontz would lose the case.

That’s where I was wrong.

As it turns out, the Court didn’t quite look at this case as one about taking property. Rather, they looked to the legal doctrine of unconstitutional conditions. The Court ruled in Koontz’s favor because they looked at the government’s proposed condition (Koontz only gets a permit on the condition that he pays to mitigate wetlands) and said that it would have been a taking if it had happened.

When the government says to a citizen “You cannot get benefit B unless you give up constitutional right C”, then there has been an unconstitutional condition. For instance, it would be unconstitutional for a state to tell a citizen that he cannot get his Medicare benefits unless he stops protesting the war. Protest is a constitutionally guaranteed right and the government cannot withhold a benefit on the condition that a citizen gives up that right. To my own surprise I foreshadowed this argument in my earlier post when I said Mr. Koontz might argue that he is effectively being forced to accept an unconstitutional permit if he wants a resolution, because if he doesn’t accept the permit then no property changes hands and he has no basis on which to sue.

Even though I thought of this argument, I reached a different conclusion from the Court. I reasoned that the right Koontz was being asked to give up—the right to keep his property—was not a constitutional right. The Constitution clearly permits the government to take private property. Where I fell short was in ignoring the requirement of just compensation. If the government did, in fact, demand property from Koontz, they demanded it without offering just compensation. In other words, (at least in theory, and I’ll come back to this) the government conditioned Koontz’s permit on his willingness to give up property without just compensation. It is unconstitutional to take property without compensation and a condition demanding property without compensation is therefore an unconstitutional condition. On this point the Court was exactly right and I was exactly wrong.

There are two important notes here. First, it is important to realize that under this logic, the case really is not about takings law. Because the government never issued Koontz a permit, no property ever changed hands, nothing was taken. Koontz refused to accede to the unconstitutional condition. Since nothing ever changed hands, Koontz is not entitled to the constitutional remedy of just compensation. Nothing was taken so there is nothing for which to compensate him. If he gets any payment for his troubles it will not be payment demanded by the Constitution, but some payment that might be required by Florida law.

The second note brings us back to the underlying condition. The Court reasoned that the condition was unconstitutional if it required transfer of property without compensation. So there was one last issue that the Supreme Court had to decide: Could there be a taking where the demanded property was money rather than physical or intellectual property? In other words: Could a requirement to pay, rather than a requirement to give up land, amount to a taking?

The Court found that transfer of money could amount to a taking. The Takings Clause is traditionally focused on physical or intellectual property, so expanding to general cash transfers is a dramatic shift, and to me, this shift seems to lead to absurd results. Suppose the government demands that Koontz remediate a wetland for the cost of $5,000 and that is deemed a taking. It therefore requires just compensation. It isn’t hard to calculate a fair compensation for taking $5,000. Unless there has been a dramatic economic shift, the fair value of $5,000 is $5,000. The government then gives Koontz his money back. Now there has essentially been no taking to begin with. Other than some transaction costs, everybody is back to exactly where they started. Put differently, it is as if there had never been a taking in the first place. Nothing of consequence has happened.

This is absurd because the Constitution very explicitly allows the government to take property. This is exactly the point of the Takings Clause. The government can take property so long as the property is taken for a public use and the government pays just compensation. But if the Court views money as property for these purpose, then the government has effectively lost its constitutional ability to take this type of property even when necessary for a public use. Imagine if the Court ruled that government could take land to build a school, but only as long as the government returned the land as soon as they took it! In effect the government cannot take the property at all. This is a farcical reading of the Constitution but is an exact parallel to what the Court is setting up when cash can be the basis of a taking. The ruling also suggests that government may never be able to charge fees or levy taxes without immediately refunding them. The Court noted this fear and assured that the Koontz ruling does not infringe on taxes, but the Court gave no guidance on a distinction between charges that require refunds and those that do not.

That seems absurd to me, and unconstitutional, but I’ve been wrong before.